JD DURKIN: Very happy Monday morning to all of you AAP subscribers watching at home. Mr. Chris Versace and I are back to get you ready for another week, as Wall Street returns from that ever-so-needed three-day weekend. Chris, good morning.
CHRIS VERSACE: Good morning, JD.
JD DURKIN: Markets, of course, were closed on Friday, so we didn't really get the chance to talk about that jobs report-- a bit better than expected. The US economy adding 236,000 non-farm payrolls in March. Of course, we also got revisions for previous months as well on Friday. Any change to your broader view of the portfolio, Chris?
CHRIS VERSACE: No, JD, not really. I mean, I think the context of the report, when you line it up against what we saw earlier in the week with the March ADP report that missed as well as that February JOLTS report, the March employment report kind of tells us, don't worry. The economy is not falling off a cliff.
We still created, as you said, 236,000 jobs. And if you look at the household version of the data that also came out on Friday, even more jobs were created. So it tells us that the economy, again, is not tumbling into the black abyss that a lot of folks are kind of starting to fear.
On the other hand, we did see that the wage inflation data, while it improved month over month, was still rather hot, I would say-- a rather large distance away still from the Fed's 2% target. And then, of course, that unemployment rate ticked lower at 3.5%, down from 3.6%.
Not only-- and I was surprised to see this-- not only compared to February, but it was also down compared to the March 2022 data. So without question, the employment market continues to remain rather tight. And I think what we saw on the CME FedWatch Tool, with the shifting of expectations now favoring a 25-basis-point rate hike in a couple weeks when the Fed meets next, not all that surprising.
JD DURKIN: We do have several data points that we'll be interested in in the next few days. We got CPI, PPI, retail sales figures. That comes our way on Friday. I know you'll be watching it. But Chris, is there anything else our members, you think, should be paying a bit more close attention to than they might otherwise think to?
CHRIS VERSACE: Yeah, so we have a couple "Fed Heads," as we like to say, making the rounds this week. After today's close, we've got Fed Bank President of New York John Williams speaking. And given what I just said about the shifting of expectations for what the Fed is going to do in a couple weeks, again, raised by 25 basis points, the CME FedWatch Tool continues to show several rate cuts in the back half of 2023.
So I think the market's really going to lean into what Williams has to say, as well as other "Fed Heads," not about the near-term, but the longer-term expectation for monetary policy. That, of course, is going to be key.
As we've been talking about with members, both in videos with you and in the alerts, the concern we have is that the Fed does not do what the market expects. That means that the CME FedWatch Tool's expectations will have to get dialed up, closer toward that 5.1% Fed funds rate that the Fed continues to target as of now. And that's going to lead to another round of rethinking for the market.
JD DURKIN: Now time for my favorite question. If it's Monday, I have to ask you, in terms of your management of the portfolio, Chris, is there anything you would do differently if you had the benefit of a redo button? If you can go back in time a little bit, what would you do differently this time last week?
CHRIS VERSACE: So we actually did quite a bit last week during what was, as you know, JD, a shortened week with only four trading days. We picked up some shares of Elevance, Deere, United Rentals, and Vulcan Materials. So it's hard, I think, to have done a lot more.
I think rather, coming into this week, the question is, what are we thinking about that we may do this week? And in the morning comments out to members, I've kind of suggested, look, we are continuing to watch what's unfolding in the tech landscape, with an eye towards our Marvell shares. We knew we were going to be in early with them. We knew we were going to slowly build to position on pullbacks in the share price. We're likely to do that in the coming days.
The other name that we've been asked about by members and one we've said that's really close on our radar screen are the shares of Clear Secure. So those are some of the things I think that, as we look ahead, we might entertain doing more with.
JD DURKIN: Of course we'd be remiss not to mention earnings week begins already-- [LAUGHS] which I only laugh. It's like, didn't we just-- aren't we just done with this? Do we ever have economic cycles where we don't have earnings? But we're back at it-- Wells Fargo, JP Morgan, and Citigroup, reporting quarterly results. What will you be following, especially given the club's position in B of A, Chris?
CHRIS VERSACE: Yeah, so there's really two things that we'll be watching for just in general with the bank earnings. What do they say about loan growth, consumer credit, all these things that tie into the economic picture? But remember, too, that there's this tightening of credit as a result of the recent bank failures.
As we start to hear these banks and, of course, move into next week and get a few others, including our own Bank of America, what we want to have a better understanding is, to what degree will that tighter credit equate to a rate hike by the Federal Reserve?
I think that's one of the big questions everybody's waiting to see. And based on what we learn, if we see our shares of Bank of America trade off-- call it 26, 27, somewhere in that range-- we're likely to get more aggressive with that newer position in the portfolio. Again, reason being for that is all the data that we're seeing is that the larger banks, Bank of America included, continue to pick up share from these regional Fed banks-- excuse me-- regional banks and other smaller banks as a result of those recent bank failures.
JD DURKIN: Yeah, of course. And so far, year to date, financials is the-- 1 of the 11 sectors that's currently down the most-- down more than 6%. So we'll certainly be following those names for a better sense, especially on, as you say, tightening credit conditions and what information those reports may hold. Before we wrap up, Chris, anything else you think members should be keeping an eye on for the week ahead?
CHRIS VERSACE: Yes. I think the tech sector is going to be one that we're going to have to watch rather closely. If you just think about what we've heard in the last several days, Micron came out and, of course, they warned about their second quarter. They gave another warning as well about the PC market, shifted their outlook for the smartphone market so it's a little weaker than expected.
And then on Friday, as we shared with members, Samsung came out really preannouncing a very hard-hit profit number for the March quarter. And then this morning, we had Taiwan Semiconductor, the largest chip foundry, coming out with their March revenue. And when you tallied it all together, their March quarter revenue was weaker than expected.
I think we're going to start to see some ripple through-- ripple throughs on this. Again, just for a little more context, during the first quarter, tech was a beast. Todd Campbell and I recapped that on last week's AAP Podcast, and we were a little concerned that tech, from a valuation perspective, was getting out over its skis. And with the data points that I just mentioned, that really seems to be the case.
From our perspective, running portfolio, we're actually a little happy to see this because it tells us that, you know what, expectations are likely to get dialed back. We might have a couple names that are sitting in the bullpen or elsewhere that we can get a little more comfortable with, leading into them potentially calling maybe one up to the portfolio sooner than expected.
JD DURKIN: All right. The great Chris Versace, welcome back after a long weekend, my friend. Best of luck for the days ahead. Thanks for being here.
CHRIS VERSACE: Sure thing, JD. Happy to do it
JD DURKIN: All right, folks. Members one and all, thank you, as always, for watching the Monday edition of the show. Chris will be back tomorrow for more on the news that could shape the week ahead. We'll see you then.